Millennials are Shaping Housing

Pavel Saikin
Mar 3, 2022
4 min read

Updated: May 8, 2024

The term “unprecedented year” has become so common that it might as well just become the new normal, especially since 2022 is looking to keep the trend going. It is common knowledge that the housing market across the US has been in a frenzy for the last two years. That frenzy hit the shores of the Hudson River in the Summer of 2021 and has set up camp. Rental prices and demand across NYC, as well as Jersey City and Hoboken, were low throughout 2020 and 2021. Starting around July/August of 2021, rental demand saw a sharp increase, leading to prices hitting all-time-highs by December and sustaining their levels. Even climbing in many cases. Large price spikes do not come without demand, so the question perplexing many in the housing market is, where did all of the demand come from?

Age Demographics in US

One of the key driving forces to the large housing demand in the suburbs, as well as the recent spike in urban demand, comes from the population concentration in certain age groups. The highest populated age group in the US is 25-29, with 30-34 being a close second. The pandemic caused many to consider living outside of city environments, which led to an initial slump in urban pricing. 25-29 year olds put their plans to rent on pause and 30-34 year olds either chose alternative locations or took advantage of the lower rent prices. As the NYC and surrounding areas began to open up in 2021, demand slowly started to return, and by the summer, demand was heavily outpacing supply.

Based on the large density of the 30-34 group, we can expect more buyers to continue entering the market to get away from the high rent prices. The 25-29 group will continue to seek housing, which typically tends to be a rental, further leading to rising rents. Urban housing relies on density. The pandemic caused international demand to dwindle, but that international demand is now being replaced domestically. Millennials tend to have a preference for city environments and NYC is the epicenter of that desire. Whether for culture or career, the NYC and surrounding areas have an appeal to younger demographics, who are quickly increasing the demand. As time passes, the 25-29 group will entering the buying market, further competing with the current 30-34 group. The amount of land that can be developed in and around NYC is limited, so if the demand persists, the housing market could experience a supply shortage for years to come.

Rent Prices

The challenge that many individuals find themselves facing is, they either need to compete to purchase a home, or they have to subject themselves to rising rent prices. Developers have been aggressively building rental towers for the last few years and are continuously proposing new projects. With all of these new rental towers, it helps to alleviate some of the rental demand, but these new buildings are also calling for the highest rent prices, well above averages. This leads to the lower priced rentals garnering more demand, bidding their prices up, and eventually leading to the newer towers renting due to a narrowing of the pricing gap from the lower-end bidding wars. Even with all the development, supply cannot keep up with demand. This rampant rental development also has one more consequence, increased buyer demand. A portion of the renter population become home-buyers every year, and as we increase the amount of renters, that demand grows every year. All while the purchasable housing supply gets minimal addition relative to the demand growth.

Interest Rates

It is a fallacy that home values decline when interest rates go up. It is more of a correlation than a causation. When interest rates go up, homebuyers lose buying power because the monthly expense increases. This would lead to lower home prices in an isolated scenario, but outside economic forces play a much larger role in home trends. If interest rates are increasing in response to a high demand market, the rates are only meant to cool down the system, but not crash it. Some buyers may not be happy with the increase of interest rates, but since we are only around pre-pandemic levels, these interest rates are still low enough for many to not be deterred. In fact, many homebuyers are much more eager to get into a purchase in fear of the alternatives - rising rent prices or possibly higher interest rates.

What it all means

Housing demand is unlikely to weaken throughout 2022. Supply will play a factor in the price trajectory, but many of the homeowners leaving JC/Hoboken for the suburbs have already left and the supply has already fallen back to pre-pandemic levels. The return to normal supply levels along with heightened demand will cause prices to likely continue to rise. There are still many economic factors that may have an impact on home prices throughout the year, but the shortage of housing supply and the growing population entering the housing market will likely overpower most economic factors. The spike in demand may ultimately lead to a more gradual uptrend, but not until prices come closer to a supply and demand equilibrium. Based on the demand, we have not reached that point. Based on the age demographics, we may not reach that point any time soon.